Tag Archives: water-service

Dividend Growth Stock Overview: Connecticut Water Service, Inc.

Summary CTWS provides water service to 123,000 customers in Connecticut and Maine. The water and wastewater utility segment provides over 90% of its income. The company has increased dividends since 1970. Over the last two decades, CTWS has grown its dividend at less than 2% annually. CTWS has a payout ratio of 55%, and the stock currently yields 3%. About Connecticut Water Service Connecticut Water Service, Inc. (NASDAQ: CTWS ) provides water utility services to over 123,000 customers across portions of Connecticut and Maine. The company employs 265 people and is headquartered in southeastern Connecticut. The company has 5 wholly owned subsidiaries, two of which cover Connecticut Water’s regulated utility business. The Connecticut Water Company and The Maine Water Company serve a population of about 400,000 people in their respective service areas. The Connecticut Water Company is the company’s original business, while The Maine Water Company was formerly Aqua America’s Aqua Maine subsidiary. The subsidiary was acquired at the beginning of 2012 for $35.6 million. Connecticut Water Services’ business is organized into three segments: Water Activities, Real Estate Transactions, and Services and Rentals. The Water Activities segment covers Connecticut Water’s regulated companies’ activities; the segment includes 2,100 miles of water mains, and a reservoir storage capacity of 9.4 billion gallons. The segment’s 239 active wells and 25 surface water sources is capable of supplying 176 million gallons per day. This segment provided 93% of Connecticut Water’s total net income in 2014. The Real Estate Transactions segment is responsible for disposing of Connecticut Water’s real estate holdings when they no longer serve the company’s needs. The company will sell or donate for income tax benefits the real estate holdings. This segment’s contribution to the total company’s net income is negligible; in 2014, this segment earned $50,000. The Services and Rentals segment provides contracted services to other water and wastewater utilities, like operating facilities under contract. This segment is also responsible for marketing and operating the optional service line protection program offered by Connecticut Water, which covers the cost of repairs to a broken water service line. At the end of 2014, 20,000 customers had signed up for the program in Connecticut and 2,000 had signed up in Maine. In general, this segment provides 7 – 10% of the company’s total net income; it was 7% in 2014. In 2014, Connecticut Water earned a total of $21.3 million on $94.0 million in revenues, numbers that were up 16.7% and 2.8%, respectively. The large increase in income was due an authorized increase in water rates and a reduction in income taxes. Earnings per share were up commensurately by 16.1% to $1.95. With the current annualized dividend of $1.07, the company’s current payout ratio is 54.9%. The company’s book value increased by 5% to $18.83 at the end of 2014. The company’s debt stayed flat year-over-year; the company has a debt-to-equity ratio of 84%. The company has authorized a stock repurchase program that allows for the purchase of up to 10% of the company’s total outstanding shares. The company has not purchased any shares under the program and stated in its 2014 10-K filing that it has no plans to do so. The company is a member of the Russell 2000 index and trades under the ticker symbol CTWS. Dividend and Stock Split History (click to enlarge) Connecticut Water Service has compounded dividends at about 2.7% since 2010. Connecticut Water has increased dividends since 1970. The company regularly announces increases in mid-August, with the stock going ex-dividend at the end of August. In August 2015, Connecticut Water announced a 3.9% increase in its dividend to an annualized rate of $1.07 per share. Connecticut Water should announce its 46th annual dividend increase in August 2016. Connecticut Water has grown its dividend extremely slowly over its history. For the last 20 years, the company has increased the year-over-year quarterly dividend by no more than a penny, resulting in a 5-year dividend growth rate of 2.68%. Longer term, the dividend growth rates are even slower, with 10-year and 20-year dividend growth rates of 2.20% and 1.72%, respectively. The company has split its stock twice, both times 3-for-2. The most recent stock split occurred in September 2001. Prior to that, Connecticut Water split its stock in September 1998. For each share purchased prior to September 1998, you would now have 2.25 shares of Connecticut Water stock. Over the 5 years ending on December 31, 2014, Connecticut Water Service stock appreciated at an annualized rate of 11.28%, from a split-adjusted $20.97 to $35.78. This underperformed the 13.0% compounded return of the S&P 500 and the 14.0% compounded return of the Russell 2000 Small Cap indices over the same period. Direct Purchase and Dividend Reinvestment Plans Connecticut Water Service has both direct purchase and dividend reinvestment plans. You must already be an investor in Connecticut Water Service to participate in the plans. The minimum amount for the direct purchase plan is $25. The dividend reinvestment plan allows for partial reinvestment of dividends. The plans’ fee structures are somewhat favorable for investors, with the company picking up all costs on stock purchases. However, when you sell your shares you’ll pay a sales commission of $15. In addition, if you withdraw from the dividend reinvestment plan completely, you will pay a termination fee of $35. All fees will be deducted from the stock sales proceeds. Helpful Links Connecticut Water Service’s Investor Relations Website Current quote and financial summary for Connecticut Water Service (finviz.com) Information on the direct purchase and dividend reinvestment plans for Connecticut Water Service Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Dividend Growth Stock Overview: California Water Service Group

About California Water Service Group California Water Service Group (NYSE: CWT ) is a holding company with six operating subsidiaries that provide regulated and non-regulated water utility service to nearly 500,000 customers in four states. The regulated subsidiaries are California Water Service Company (Cal Water), New Mexico Water Service Company, Washington Water Service Company, and Hawaii Water Service Company. Non-regulated services – like billing and meter reading services, and leasing antenna sites to telecommunications companies, are provided by the CWS Utility Services and HWS Utility Services subsidiaries. The company dates back to the formation of Cal Water in 1926. California Water Service Group organizes all of its business into a single segment. Nearly all (94%) of the company’s customers and revenues come from business conducted in California. More than half of the California customers are in the greater San Francisco Bay area; the rest of the customers are in locations throughout the rest of the state. The Hawaii Water Services and HWS Utility Services subsidiaries serve 4,300 customers on the islands of Maui and Hawaii. The Washington Water Services subsidiary serves 16,300 customers in the Tacoma and Olympia areas, and the New Mexico Water Services subsidiary serves 7,600 customers in three communities between Albuquerque and Las Cruces, NM. In 2014, California Water Service Group earned $56.7 million on revenues of $597.5 million. These figures were up 20.0% and 2.3%, respectively from 2013. The increase in net income was due to the approval of a 9.2% rate increase by the California Public Utilities Commission (CPUC). The CPUC has approved future rate increases of 1.9% in 2015 and 1.8% in 2016. Earnings per share were up in 2014 as well, by 16.7% to $1.19. With the current annualized dividend rate of 67 cents per share, the company’s payout ratio is 56.3%. The company has stated that it targets a payout ratio of 60%, giving the company a bit more room to grow the dividend. The company is a member of the Russell 2000 index and trades under the ticker symbol CWT. California Water Service Group’s Dividend and Stock Split History (click to enlarge) California Water Service Group has grown its dividends slowly, compounding them at a rate of less than 2% over the last quarter century. California Water has paid dividends since 1945 and increased them since 1968. The company regularly announces increases at the end of January, with the stock going ex-dividend towards the middle of February. In January 2015, California Water announced a 3.08% increase in its dividend to an annualized rate of 68 cents per share. California Water should announce its 49th annual dividend increase in January 2016. Like many public utilities, California Water has grown its dividend very slowly over its history. Since 2001, the largest increase in the quarterly dividend has been half a cent, resulting in a 5-year dividend growth rate of 2.40%. Longer term, the dividend growth rates are even slower, with the company posting a 25-year dividend growth rate of 1.74%. The company has split its stock six times. The first split, 4-for-1, occurred in 1940. The next split occurred in March 1959 and was 2-for-1. It would be another 25 years until the stock split again – in May 1984, the company split the stock 2-for-1 again. The remaining three splits were also 2-for-1 and occurred in October 1987, January 1998 and, most recently, in June 2011. Over the 5 years ending on December 31, 2014, California Water Service stock appreciated at an annualized rate of 9.21%, from a split-adjusted $15.62 to $24.27. This underperformed the 13.0% compounded return of the S&P 500 and the 14.0% compounded return of the Russell 2000 Small Cap indices over the same period. California Water Service Group’s Direct Purchase and Dividend Reinvestment Plans California Water Service has both direct purchase and dividend reinvestment plans. You do not need to be a current investor in California Water Service to participate in the plans. The minimum investment amount is $250 for new investors and $25 for existing shareholders. The dividend reinvestment plan does allow for partial reinvestment of dividends. The plans’ fee structures are favorable to investors, with the company picking up all costs on stock purchases, both directly and through dividend reinvestment. When you go to sell your shares, you’ll pay a transaction fee of $15 plus a commission of 10 cents per share. All fees will be deducted from the sales proceeds. Helpful Links California Water Service Group’s Investor Relations Website Current quote and financial summary for California Water Service Group (finviz.com) Information on the direct purchase and dividend reinvestment plans for California Water Service Group Disclosure: I do not currently have, nor do I plan to take positions in CWT.

Here’s Why I Am Staying Away From California Water Service Group

Summary California Water Service Group is a water utility serving California, Washington, New Mexico and Hawaii. California Water Service Group generated free cash flow in only two of the past 19 years. California Water Service Group possesses a high amount of long-term debt. It’s important for long-term investors to develop a guide for doing their investment research. Over the years, I have developed questions to guide me in my thinking when researching the publicly traded universe. Today, let’s talk about California Water Service Group (NYSE: CWT ). 1.) What does the company do? When you buy shares in a company you effectively become part owner of that company. Therefore, it’s important for an investor to understand what a company sells. California Water Service Group sells water. The company operates mainly on the west coast in states such as California, Washington, New Mexico and Hawaii. It operates regulated and non-regulated businesses. 2.) What do the fundamentals look like? Investors should also look for companies that grow revenue and free cash flow over the long term, retaining some of that cash for reinvestment back into the business and for economic hard times. Excellent revenue and free cash flow growth serve as catalysts for superior long-term gains. California Water Service Group expanded its revenue and net income 32% and 63%, respectively, over the past five years (see chart below). CWT Revenue (TTM) data by YCharts California Water Service Group operates in a highly regulated business which constrains operations. Also, drought conditions make operating a water utility difficult. Moreover, the company has only been free cash flow positive in two of the past 10 years, according to Morningstar. Large amounts of capital expenditures exceed operating cash flow due to the capital intensive nature of the business. Capital maintenance of this nature leaves little room for expansion and tangible capital returns to shareholders in the form of dividends, which can contribute heavily to any stock market return. I like to see companies expand their free cash flow over the long term. This gives an indication that a company can stand on its own two feet. California Water Service Group sports a lousy balance sheet by my standards. In the most recent quarter, the company possessed $33.3 million in cash and equivalents, which equates to a mere 5.4% of stockholders’ equity. I always like to see companies with cash amounting to 20% or more of stockholders’ equity to get them through tough times. California Water Service Group’s long-term debt amounts to 68% of stockholders’ equity. I like to see companies keep long-term debt at 50% of stockholders’ equity or less. Operating income only exceeded interest expense by three times in FY 2014. The rule of thumb for safety lies at five times or more. Like most utilities, California Water Service Group does pay a dividend. However, its dividend sustainability doesn’t hold water. I like to see companies pay out less than 50% of their full-year free cash flow in dividends, retaining the remainder for other things. Last year, California Water Service Group ran a free cash flow deficit, meaning that the dividend came from sources other than free cash flow. Currently, the company pays its shareholders $0.67 per share per year and yields 2.9% annually. California Water Service Group’s sub-par fundamentals only translated into 48% total return for the company’s shareholders vs. 114% for the S&P 500 as a whole (chart below). CWT Total Return Price data by YCharts 3.) How much management-employee ownership is there? Investors should always look for businesses where the managers and/or employees own a lot of stock in the company. Managers with a great deal of stock in the company will take better care to maximize company profits, which will enhance share price and their personal wealth along with the wealth of shareholders. According to California Water Service Group, company executives each own less than 1% of the company’s stock. This isn’t too big of a deal, this just mean that management lacks the extra incentive provided by huge ownership of the company. 4.) How does its “Report of Independent Registered Public Accounting Firm” stack up? Every year a company employs external auditors to audit financial statements and evaluate whether the company maintains adequate financial controls. At the conclusion of the audit, you want to see a letter from auditors with the language “unqualified” or “fairly presents”, which generally means that the financial statements and internal systems in constructing them were clean or adequate. If you see “qualified” or “adverse” in the auditing letter’s language, then deeper issues in a company’s financial statements may exist. According to California Water Service Group’s latest auditing statement, the financial statements were presented fairly and the company maintained adequate internal controls. 5.) What types of risk does it have? It’s always important for investors to weigh the various risks such as exposure to political risk in parts of the world where war is the norm, competitive positioning, and market price risk. California Water Service Group operates exclusively in the United States, which means political risk resides in the minimum range. California Water Service Group represents an infrastructure stock, meaning there is little or no competition in its service area. The barriers to entry reside in the high range due to regulatory and capital hurdles to entering the business. However, drought conditions could increase regulatory scrutiny and the introduction of more exotic accounting. California Water Service Group’s market price risk actually resides in the low range. The company’s P/E ratio clocks in at 18 vs. 19 for the S&P 500 as a whole, according to Morningstar. 6.) What does its forward analysis look like? Just because California Water Service Group is a needed water utility doesn’t mean that it’s risk free. I prefer to see companies generate free cash flow on their own and possess a margin of safety in terms of interest cost coverage. Regulatory conditions combined with high capital maintenance will make it difficult for the company to generate free cash flow, which represents the life blood of things like superior capital gains and dividend increases. I am keeping my investment dollars away from this company. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.